Explain why the printing of money won't cause inflation.If you've been reading Economic Policy Journal at all recently, you are probably clenching your teeth as you read that last line. The only conclusion a person can come to when Dalio says that the bonds of countries that can print their own money, specifically, will be good investments, is that Dalio and his clients are about to be run over by an inflationary bus.
The printing of money will offset the deflation that is coming from the weak demand for goods and services due to weak credit growth. For example, in March of 1933 the U.S. printed a whole lot of money, and that had the effect of converting deflation into modest inflation, but not a high rate of inflation.... My point is, in developed countries there is too much of most things at the moment, and that's creating a deflationary environment. There is too much manufacturing capacity. There is too much labor. There is too much housing stock. As Europe's economy weakens and its debt crisis worsens, the printing of money does not mean that it will produce an accelerating inflation because simultaneously there is also less being purchased, and the surpluses are already causing deflationary pressures. That is why, contrary to almost everybody's belief, I believe the bonds in countries that can print money will be good investments.
Sunday, May 30, 2010
Ray Dalio, Manager Of The World's Largest Hedge Fund, Totally Clueless On Inflation
It's hard to figure out what to make of this Barron's interview with Ray Dalio, CIO of Bridgewater Associates (subscription required):